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E.g., 08-07-2020
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    Gavekal Research

    The Conditions Needed For A Bottom

    Financial markets are now in full-blown panic mode. For investors, the key question is: What will it take for markets to form a bottom, and when will this happen? No one can answer with any precision. However, it is possible to discern the broad conditions needed to allow the markets to find a bottom. We are nowhere near them yet.

    0
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    Gavekal Research

    Europe In The Eye Of The Storm

    After the US slapped a 30-day travel ban on visitors from Continental Europe the world’s three biggest economic areas are now effectively cut off from most human contact. As China sees its infection rate level off, the growth dynamic of this pandemic has shifted to Europe. Economic effects will depend on government responses.

    0
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    Gavekal Research

    Another View Of The Bond Bubble

    How should we think about the unstoppable journey of all OECD bond yields towards zero, including 10-year, 50-year and even 100-year maturities from governments not noted for multi-generational predictability, such as Italy, Greece, Austria and post-Brexit Britain? On Monday Louis offered two explanations. Today, Anatole presents a third.

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    Gavekal Research

    Six Degrees Of Uncertainty

    World markets are in full-on panic mode, thanks to a cloud of unknowing that has settled over two topics of broad importance: the spread and economic impact of the coronavirus, and the outcome of the oil-price war between Saudi Arabia and Russia. The topics are related, and so we are grappling with the problem of pricing epidemic-related uncertainty.

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    Gavekal Research

    A Hand Grenade In A Bloodbath

    If you ever wondered what would happen if someone lobbed a hand grenade into a bloodbath, now you know. Markets were always going to be shaky on Monday, as it became increasingly clear that the US is set to see a sharp rise in recorded coronavirus cases. Then, on Friday Russia walked out of the Opec+ oil producers’ cartel, initiating an all-out price war in the oil market.

    1
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    Gavekal Research

    The Unfolding Rotation

    Last Friday, the markets rallied hard into the close as investors anticipated a coordinated policy move over the weekend. With policy responses in the rear view mirror, this weekend will likely prove different. Markets will continue to be choppy in the immediate future. Even so, amid all the volatility, some interesting developments are emerging.

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    Gavekal Research

    Behind The A-Share Rebound

    Although China is ground zero for the coronavirus outbreak, its onshore stock markets are the world’s best performing major markets so far this year by a considerable margin. For the most part this is due to mood-enhancing domestic policy support, which is likely to continue to counteract the catastrophic near term earnings outlook.

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    Gavekal Research

    How To Ride The Liquidity Wave

    On Tuesday the US Federal Reserve made good on its promise to counter the “evolving risks to economic activity” posed by the coronavirus, cutting its key policy rate. Monetary easing will neither cure the virus nor fix disrupted supply chains, but it will provide cheap funds for companies while they weather the storm.

    1
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    Gavekal Research

    Buy The Dip, Or Sell The Rally?

    When the market falls -10% in a week, and then rallies 5% in a day, investors face a question: Do I buy the dip, or sell the rally? An investor selling the rally would in essence be making a bet that the negative impact of the coronavirus will outweigh the central bank support and G7 finance ministry action that has been promised.

    0
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    Gavekal Research

    When To Catch A Falling Knife

    Now that the Federal Reserve has hit the panic button, is it time to try to catch the falling knife on Wall Street? Technical analysis and investor sentiment suggest that equity prices may still have somewhat further to fall before they find a sustainable floor, even if the viral threat is probably overstated and stimulus by major governments will eventually outweigh the temporary economic collapse.

    3
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    Gavekal Research

    The Last Shall Be First

    Just a week ago, the S&P 500, Nikkei 225 and Eurostoxx 50 were all looking healthy. But over the past week, every major market has fallen by anywhere from -6% to -12%. This is highly unusual. The S&P 500 has only fallen by -10% or more four times in its post-1945 history. Each of these drops ended up having hugely important investment ramifications.

    6
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    Gavekal Research

    The Fragility Of A Complex World

    The question investors must confront is whether the global economy is a slow but resistant beast of burden, or a finely tuned machine which has now been thrown off its axis.

    0
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    Gavekal Research

    The Velocity Of Money In The Time Of Covid-19

    Most serious investors know MV=PQ, where M is the money supply, V is the velocity of money, P is the general price level and Q is output. The typical approach is to wait for M, P and Q to be published and so derive V, which renders the equation a mere tautology. In contrast, Charles has long thought V to be an independent variable whose variations impact P and Q.

    0
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    Gavekal Research

    Doing On Monday What We Wish We’d Done On Friday

    Monday was the epitome of Charles’s observation that in a down-market, the temptation to sell on Monday what you wish you’d sold on Friday can become overwhelming. As markets sold off on Monday following a weekend of bad news, the following developments seemed especially relevant.

    0
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    Gavekal Research

    Far From Priced In

    Asian markets switched to risk-off mode Monday as investors reacted to further coronavirus news outside of China. Yet in onshore markets, investors are optimistic that the economy will quickly normalize as the spread of the virus comes under control, and that the central bank will provide policy easing. Neither belief looks well-founded at the moment.

    0
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    Gavekal Research

    What Will End The US Dollar’s Run?

    Among the confounding effects of the coronavirus has been its impact on foreign exchange markets. The last few weeks have seen heavy flows into the US dollar, on the grounds that the US economy is relatively insulated from the ill-effects of the outbreak. As fears have grown of a dismal first quarter for the eurozone on diminished external demand (see Just When Things Were Looking Up), the euro has slumped to a near three-year low against the US...

    1
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    Gavekal Research

    The Problem In US Equities

    As US equities power to new highs, investors have brushed off geopolitical ructions and fears of a global pandemic. It is less clear that weak earnings are incidental to the US bull market. With 420 firms in the S&P 500 having reported for 4Q19, earnings are only up 1.6% on the previous year.

    4
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    Gavekal Research

    Time And Risk

    The financial world is organized around two axes: time and risk. If some authority manipulates the time axis, the effect will be to compromise the risk axis. This is not an abstract formulation. It has the potential to threaten portfolios and the solvency of major institutions.

    1
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    Gavekal Research

    A Surfeit Of Money

    The fruits of the US Federal Reserve’s swing to monetary easing are ripening. In the last couple of months the about-turn in monetary direction has triggered a dramatic rebound in aggregate US money supply growth, which is outpacing GDP growth. This suggests excess cash may be piling up. If so, the excess is likely to further bid up US asset prices.

    4
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    Gavekal Research

    The Risk Of Falling Behind The Epidemic Curve

    China’s government was slow off the mark in responding to the initial outbreak of the new coronavirus. Although the government is now fully mobilized to fight the outbreak, it risks falling behind the curve again—this time in responding to the economic damage wrought by its extended shutdown of normal life and business activity.

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